Premium Bonds are the most popular form of savings account in the UK, with more than 21 million people across the country holding at least one. In total the best part of an incredible £72 billion are held within Premium Bonds.

But these bonds aren’t like the sort of savings account you might find from a high street bank or building society.

It doesn’t pay interest

Traditional savings accounts reward account-holders in the form of interest paid on the balance. For example, according to financial information site, the average rate of interest paid on a one-year fixed bond currently stands at 1.32%, while the top rate on an easy access account pays 0.52%.

Premium Bonds don’t work like this though, as they don’t pay a penny in interest. Instead bond holders are in the running for potentially life-changing prizes.

Premium Bond prizes

Every £1 held in Premium Bonds is given a bond number. These bonds are then entered into a monthly draw, with more than three million prizes handed out to the winners.

The top prize is worth £1m, with two monthly winners taking this prize. More than 7,000 prizes handed out each month are worth between £500 and £100,000, with the lowest prize handed out at £25.

Each bond has a 24,500 to one chance of winning, with all of the prizes being absolutely tax free.

So while you don’t earn interest on the money you put into bonds, if you’re lucky you could end up with a far more significant return than any normal saving account would deliver.

Buying Premium Bonds

If you want to put some money into Premium Bonds, then you need to invest at least £100. In total you aren’t allowed to hold more than £50,000 in Premium Bonds.

Bonds have long been a popular option as a gift too, particularly with grandparents who want to start saving for their grandchildren’s future.

Is my money safe in a Premium Bond?

One of the big attractions of a Premium Bond is the security it offers savers. The accounts are provided by National Savings & Investments (NS&I), which is backed by the Treasury. As a result, every single penny you put into Premium Bonds are protected.

This isn’t the case with traditional savings accounts offered by banks and building societies. While these are protected by the Financial Services Compensation Scheme (FSCS), there is a cap in place, which means that only the first £85,000 you save with any one institution is protected.

In other words, if you save £100,000 with a bank that goes bust, you’ll lose £15,000. There’s no danger of that happening with Premium Bonds.

Unclaimed Premium Bond prizes

There are currently a staggering number of unclaimed Premium Bond prizes, so if you already hold some bonds it’s worth checking whether you’re a winner.

You can do so by entering your numbers on the Premium Bonds website. The good news is that there aren’t any time limits on prizes - even if you won 20 years ago without realising it, the money is still there waiting for you.

Should I invest in Premium Bonds?

If you are most concerned about getting a guaranteed return on your money, then Premium Bonds are not for you. There are plenty of people who have held bonds for decades and not won a penny - if your luck is out, they aren’t great.

But if you are more concerned about having an entirely safe home for your money, with the possibility of winning some extra cash, then Premium Bonds will appeal.